Budgets of mass destruction

Psalm 2004

Bush is my shepherd, I shall be in want.
He leadeth me beside the still factories,
He restoreth my doubts about the Republican Party,
He guideth me onto the paths of unemployment
for the party’s sake.
I do fear the evildoers, for thou talkst about them constantly.
The tax cuts for the rich and thy deficit spending
They do discomfort me.
Thou anointeth me with never-ending debt. And my savings
and assets shall soon be gone.
Surely poverty and hard living shall follow me.
And my jobless children shall dwell in my basement forever.

[ – Currently making the rounds on the Internet ]

After factoring out the Social Security surplus and adding in a pricey supplemental appropriation for the war in Iraq, the federal budget deficit for Fiscal Year 2004 could reach $700 billion. This would follow deficits for FY 2002 and 2003 of $318 billion and $639 billion respectively. In just three years, G.W. Bush’s fiscal policies will have resulted in a cumulative deficit exceeding $1.6 trillion.

It might be expected that “red ink” of this magnitude would generate some job growth. The President’s Council of Economic Advisers was optimistic, predicting 1.6 million new jobs by the end of FY 2003. But instead of 1,600,000 new jobs being created, 1,900,000 jobs were lost. (Economic Policy Institute Issue Brief 197, 2/12). And the wages in the emerging job markets were rapidly falling, 21 percent or $9,160 per year less in sectors actually adding jobs. (EPI “Economic Snapshot” 1/21).

This situation is not at all surprising given the recent remarks of Gregory Mankiw, chairman of the President’s Council of Economic Advisors, praising the corporate practice of “outsourcing.” Shifting U.S. jobs to low-wage countries overseas is “just another way of doing international trade” and “probably a plus for the economy in the long run” according to Mankiw.

Outsourcing is also a contributing factor in the current “jobless recovery,” following the brief recession that the National Bureau’s Business Cycle Dating Committee reported ending in November 2001. While the recession is officially over, layoffs continue, with 500,000 factory jobs evaporating in 2003 alone.

Slashing corporate and upper income tax rates serves to create huge strategic deficits “as far as the eye can see.” The results, according to New York Times columnist Thomas Friedman, are “budgets of mass destruction,” which “recklessly imperil the nation’s future with crazy tax cutting and out of control spending.”

In another New York Times column titled “Red Ink Realities,” Paul Krugman reports that the sharp drop in tax revenues “has come almost entirely from taxes that are mostly paid by the richest five percent of families: the personal income tax and the corporate income tax. These taxes now take a smaller share of national income that in any year since World War II.” The goal of creating “red ink realities” is to “starve the beast,” i.e. create a situation that shrinks state revenues so much that government programs which help the poor and the middle class will have to be slashed, with the savings going to the rich in the form of yet more tax cuts.

In May 2003 the administration cynically bundled their tax cuts in a bill called the “Jobs and Growth Act.” While the legislation provided millionaires with an average tax cut of $93,000, it failed to result in any net job gains.

Bush is now anxious to make his tax cuts permanent, at a cost estimated by Joel Friedman and Richard Greenstein of Center on Budget and Policy Priorities to be $2.2 trillion over the ten year span of 2005-2014 (CBPP, 1/30/04). In recent testimony before the Senate Banking Committee, Alan Greenspan, Federal Reserve chairman, indicated that the Fed would support this budget madness, but only if government spending was dramatically reduced. He recommended sharp reductions in Social Security benefits for retirees to offset any fiscal impact these tax cuts for the wealthy would likely have.

The only way out of this economic dead end is a radical shift in policy. What democratically selected mechanism can assume economic stewardship in the face of gathering crisis is something to which we urgently need to turn our collective attention.

The author can be reached at pww@pww.org.